RIAs are increasingly turning to technology to help improve their businesses and boost their bottom lines. Unfortunately, RIA firms often struggle to get the most out of their technology investments—and some ultimately fail to generate the competitive advantages they hoped to gain.

A solution to this problem boils down to one main factor: advisors’ attitudes toward technology. Through our research with advisors, we have discovered that those who take a highly strategic approach to their technology initiatives are far more likely to fully leverage their technology for maximum benefit and achieve the greatest levels of success and satisfaction with their systems.

With that in mind, here’s a look at some of the key best practices of today’s highly strategic advisory firms.

The benefits of a strategic approach

Firms that are highly strategic about their technology share two common traits: They are early adopters of new, leading-edge (and occasionally, bleeding-edge) technologies for RIAs.

They view technology as a fundamental component of their business strategy. In other words, they see technology as an investment in their firm’s future success—not simply as an expense or, worse, a burden.

The willingness to think and act strategically is a far better predictor of an RIA firm’s overall success with technology than other factors, such as the amount of money a firm spends on actual technology products and services. As seen in the chart below, the most successful firms are not necessarily the biggest spenders -- and indeed, excessive spending can sometimes backfire on a firm.

Note that strategic firms (see chart) spend just 2.4% of their revenues on technology on average, but enjoy a median profit margin of 18.3%. In stark contrast, non-strategic firms—those top-spending firms that take a passive approach to technology—generate a significantly lower median profit margin of just 8.3% despite spending twice as much on their technology (5%).

Two key best practices

These striking differences clearly show that highly strategic RIAs do a much better job of leveraging their technology investments effectively. So what, exactly, are these firms doing to generate their impressive results?

Our analysis found that strategic firms take a series of steps that can be categorized into two main technology best practices that other advisors should consider adopting:

1. Plan carefully at all stages. The biggest lesson learned from highly strategic firms is that it’s crucial to define your key business goals and issues before you purchase any technology—or even talk with a technology provider, for that matter. That way you don’t misspend your technology budget on applications that don’t address the fundamental problems you are trying to solve or the opportunities you are trying to capture.

Also, perform a needs assessment as you evaluate various technology tools and applications to determine the features and functionality you will require to achieve the results you want. As part of that assessment, consider the amount of integration and customization that will be required to fully leverage the technology, as well as the solution’s ability to support your future needs and goals as your firm grows.

Finally, when you begin implementing a technology solution, establish a timetable of the objectives that must be met at various stages of implementation in order to track your progress and keep the project on schedule and on budget.

2. Focus on ROI. Any technology you implement must be capable of generating a strong and measurable rate of return—a dividend, in effect, that you can reinvest back into your company. How you specifically determine the success of your technology investments will depend on your firm and your goals. The key is to define a vision of what success looks like to you—it could be in the form of time/cost savings, higher productivity, lower operating costs, better growth and business development and so on—and then benchmark the technology’s results against that vision to determine overall effectiveness.

Ultimately, your ability to leverage technology to improve your practice will depend on how well you integrate it into your overall business strategy initiatives. By taking a highly strategic approach that emphasizes careful planning and measurable success, you will find yourself better able to maximize the benefits that various technologies offer—and position your business for success in the years ahead.

Adam Moseley is Managing Director, Technology Consulting, at Schwab Advisor Services. He can be reached at adam.moseley@schwab.com.


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